China's real estate bubble about to burst - Evergrande

[crimsonghost747]

It's a confusing situation, but from what I can gather from quickly reading the news is that they will make the payments on the local bonds now. This was apparently worth $35.9 million.

This is just from an article:
"Evergrande is set to make its onshore bond payment on time, but the developer has not indicated whether it will be able to pay $83.5 million in interest due on its March 2022 bond VG158043114= on Thursday. It has another $47.5 million payment due on Sept. 29 for March 2024 notes VG158786753=."

I see many other articles reference the $35.9 million figure, so would be logical that this latest "of course we will pay" is indeed the smaller, local, bond interest. And that is definitely the government stepping in to make sure the local bonds get paid, they do not want this to spread.

Thursday may be interesting when it's time to pay the bonds that are due to foreign investors.

Edit: I should add that I'm not entirely sure if they are actually paying the interest on those local bonds, or whether they reached some sort of a deal to get around it. (such as an extension or some type of restructuring)

[fenders53]

Yes it's very confusing. This is where the CCP needs to interfere and be less aggressive elsewhere if they have any desire to be investable from the outside world.

[crimsonghost747]

China is making some moves.
https://finance.yahoo.com/news/china-eas...31162.html

Long story short: the Chinese government is now telling banks to lend more money more easily to home buyers, as well as letting banks sell residential mortgage backed securities in large amounts again to limit their own exposure.

Looks to me like a lot of people have lost confidence in the real estate market, and now they need to find ways to push more capital into buying houses so the overleveraged developers can remain afloat. Might just be a strategy to buy some time since I don't see this as a long term solution.

Giving out mortgages to people who logically can't afford it, pushing the risk to secondary markets through RMBS, the whole real estate sector being overleveraged... 2008 vibes anyone?

[fenders53]

We'll see how long they can GDP their way through it.  They are acting as fiscally irresponsible as the US.  Trade negotiations are going to be interesting.  Not a good time for them to let the trade imbalance go.  They have a tough winter to navigate.

[ken-do-nim]

(10-14-2021, 11:58 PM)crimsonghost747 Wrote: China is making some moves.
https://finance.yahoo.com/news/china-eas...31162.html

Long story short: the Chinese government is now telling banks to lend more money more easily to home buyers, as well as letting banks sell residential mortgage backed securities in large amounts again to limit their own exposure.

Looks to me like a lot of people have lost confidence in the real estate market, and now they need to find ways to push more capital into buying houses so the overleveraged developers can remain afloat. Might just be a strategy to buy some time since I don't see this as a long term solution.

Giving out mortgages to people who logically can't afford it, pushing the risk to secondary markets through RMBS, the whole real estate sector being overleveraged... 2008 vibes anyone?

Yikes.  Praying that China's mortgage problem doesn't affect the US too much.

[fenders53]

Imagine if we had not passed out free money to buy their stuff. I don't remember their GDP growth going sub 5% for decades. Doesn't sound like a good time for them to have a recession.

[crimsonghost747]

Ohh and what also should be mentioned in this thread is that I'm not actually sure if they ever paid the interest on those foreign bonds. I doubt it.

Also, the Chinese government has been liquidating small parts of Evergrande in the past few weeks... basically Evergrande has agreed to sell some of these assets to for example banks that are owned by the government. Could be that this is a controlled destruction of Evergrande, and they are moving vital assets out of the burning building in order to limit collateral damage when Evergrande does fail.

[fenders53]

They did not pay them. China is not at Lehman Brothers stage but it smells like Bear Stearns. Spreading the pain around so they can try to save the industry.

[fenders53]

Evergrande asset sales aren't working out.  They will be in default within days if CCP doesn't save them and it sounds like it doesn't end with Evergrande.  This will be interesting, and important.

[crimsonghost747]

Evergrande has technically defaulted on their USD bonds already. There was a grace period (probably to see if they can sell some assets) which is apparently going to end this weekend, so I guess then the default on USD bonds is official.

It'll be interesting to see how the CCP will handle this. Evergrande is gone, that is for sure, but I wonder how effective they have been in stopping the snowball effect. I think I've also seen two other (smaller) developers basically declare bankruptcy in these past couple of weeks. And I believe that one bank went under since they were a little over-exposed to Evergrande. ooops.